Financial advisors anticipate a larger volume of ESG business in the coming years
1 JUL, 2024
The 62% of financial advisors are integrating ESG criteria (environmental, social and governance) into their practices with clients, compared to 53% in 2021, according to a new study conducted by Vontobel. The result shows that sustainable offerings continue to increase in importance in the advisory space despite headwinds and the political backlash that sustainable investment has been experiencing over the past two years.
The Vontobel Advisor ESG Study 2024 evaluates the opinions of 300 financial advisors and wealth managers from 15 countries in Europe, America and Asia-Pacific to understand their views on various aspects and challenges of ESG investment.
When asked what percentage of their total business portfolio is invested in ESG, 54% of advisors worldwide stated that less than 10% is invested in this way. European advisors were the most likely to have a larger business portfolio in this area, with 24% investing at least a quarter of their total portfolio in ESG, compared to 16% in APAC and 11% in America.
This figure is expected to increase in the coming years, as ESG investment continues to gain momentum in all surveyed regions. Advisors from the three markets expect this to be a growing area over the next three years, and more than 63% expect to have 10% or more invested in ESG by the end of this period.
However, this momentum is not a universal trend. For advisors with limited ESG allocations, the most frequent reasons (80%) were that ESG is simply a trend.
Interestingly, previous concerns about the impact that ESG could have had on financial performance seem to have faded in all markets. Currently, most advisors believe that ESG investment has a neutral to positive impact on investment returns, and 65% believe it does not harm profitability at all. This is more common in Europe, where 76% of advisors believe it has a neutral to positive impact.
Despite this growing confidence, advisors face several challenges in recommending ESG investments. The biggest obstacle is the inconsistency of standards, metrics, and taxonomies, and 88% of advisors say this makes the task quite or very difficult. Other reasons cited were the insufficient availability of sustainable products in all asset classes (82%), the evolution of ESG regulation (81%), and the lack of ESG data, studies, and information (80%).
It is encouraging that the study shows that the surveyed advisors tend to access a wide range of information sources rather than relying solely on one source when researching ESG products. This helps them better advise their clients. Financial institutions and consultants (50%), industry reports and white papers (43%), and financial news and magazines (40%) are among the sources advisors trust the most.
Although ESG has recently faced several headwinds, our study shows that it will continue to grow in popularity among investors in the coming years, to the point that Bloomberg Intelligence estimates that global ESG assets will rise to 40 trillion USD by 2030. With their knowledge, competence, and proximity to clients, financial advisors and wealth managers play a key role in helping the ESG sector continue to grow and investors to benefit from this important trend.
However, significant obstacles still exist and the entire investment sector must provide greater support to help advisors overcome them. As for the perceived lack of suitable ESG products in all asset classes, a closer and more open dialogue between both parties could help ensure that the needs of advisors, and their clients, are adequately met.
Christoph von Reiche, Head of Institutional Clients at Vontobel
